The Donald Trump administration’s decision to significantly roll back fuel efficiency regulations, which were previously strengthened under the Biden administration, has created mixed reactions in the automotive industry. For U.S. automakers who have been slower to transition to electric vehicles (EVs), this change provides a much-needed reprieve. Notably, the continued popularity of hybrid models is expected to positively impact Hyundai Motor Group.
However, the substantial North American investments made under the assumption of growing electric vehicle demand may now become a burden. As U.S. automakers face reduced regulatory pressures, they are likely to push back in the internal combustion engine and hybrid markets, intensifying local competition.
On Monday, industry sources reported that President Trump approved new fuel efficiency standards on September 26 that relax the existing Corporate Average Fuel Economy (CAFE) regulations.
While specific details have yet to be released, experts anticipate that the amendments proposed by the National Highway Traffic Safety Administration (NHTSA) last December will be largely adopted.
At that time, the Trump administration announced plans to lower the average fuel efficiency target for 2031 model year vehicles from 50.4 miles per gallon to 34.5 miles per gallon, effectively reducing the standard by about one-third.
The CAFE system establishes a minimum average fuel efficiency standard for all vehicles sold by manufacturers. A higher standard forces companies to increase the proportion of electric and hybrid vehicles in their lineup.
Significant lowering of CAFE standards extends the viability of internal combustion engines and hybrid models
As a result of this regulatory easing, the pace of electric vehicle adoption in the U.S. auto market is expected to slow down. Industry experts predict an increase in sales of both internal combustion and hybrid vehicles.
Hyundai and Kia are seen as direct beneficiaries of this change. Both companies have a high proportion of fuel-efficient sport utility vehicles (SUVs) and hybrid models, which positions them favorably even under the previously tightened standards.
With the standards lowered, they also face less pressure to rapidly increase their electric vehicle sales ratios. They now have greater opportunities to boost sales of their key models, such as the Tucson, Santa Fe, and Sportage hybrids, thereby improving profitability.
In fact, Hyundai and Kia’s sales in the U.S. are bolstered by hybrid models. In August, they sold 178,405 vehicles, a slight 0.6% decrease compared to the same period last year.
Among these, hybrid models accounted for 50,057 units, marking a significant 47.7% surge year-on-year, reaching an all-time high. The relaxation of fuel efficiency regulations is likely to further strengthen this trend.
Concerns also arise over the potential reduced utilization rates of battery cell factories that have seen trillions of KRW invested, as well as intensified competition with U.S. automakers.
Hyundai Motor Group invested trillions of KRW to establish a battery cell factory in Georgia. A delayed transition to electric vehicles could lead to lower factory utilization rates, increased fixed costs, and longer investment recovery periods.
Competition with U.S. automakers is expected to intensify. General Motors, Ford, and Stellantis are likely to continue selling profitable large SUVs and pickup trucks. If they funnel cash generated from internal combustion vehicles into hybrid model development, the competition in the hybrid market—where Hyundai and Kia currently hold an advantage—could become fierce.
Analysts believe the impact on Korean battery companies will be limited. Although a slowdown in the rollout of electric vehicles by U.S. automakers may hinder the recovery of EV battery demand, Korean battery firms are already shifting their focus toward energy storage systems (ESS).
LG Energy Solution has expanded its North American ESS production base to five locations with the operation of its Lansing plant in Michigan. SK On plans to convert part of its existing electric vehicle battery production lines in Georgia to produce lithium iron phosphate (LFP) batteries for ESS applications.
Samsung SDI is also transitioning some electric vehicle battery production lines at its joint venture StarPlus Energy with Stellantis in Indiana to focus on ESS production.
An industry insider stated that the relaxation of U.S. regulations may delay the timing of the EV transition, raising concerns for related industries. However, since automakers are already responding with hybrid models and battery producers are focusing on ESS, the impact may not be as severe as initially feared.